Bush adjusted gross income limit could hurt model farms

Each time Iowa's Charles Grassley and North Dakota's Byron Dorgan introduce their payment limit amendment, many farmers shudder, wondering if this will be the time the senators finally put them out of business.

Other lawmakers are beginning to wonder if Grassley's amendment isn't yesterday's news. The bigger threat: the Bush administration's proposed reduction of the adjusted gross income limit for farm program benefits from $2.5 million to $200,000 per individual.

Not long after Agriculture Secretary Mike Johanns announced the administration's farm bill proposals, House Ag Committee Chairman Collin Peterson shrugged it off.

Suppose a farmer exceeded the $200,000 adjusted gross income limit, said Peterson. If he became ineligible for farm program benefits, his adjusted gross income might no longer exceed the $200,000 limit. So would he then become eligible for payments again?

The Johanns proposal has prompted the dark sort of humor farmers often use when faced with such issues. One Arkansan who farms a sizable acreage quoted one of his landlords as saying, “I don't want someone farming my land that can't make more than $200,000 a year.”

A study by Texas A&M University's Agricultural and Food Policy Center indicates the administration proposal might not be so funny if it became law. The Center simulated the current farm bill with and without the $200,000 AGI limit on the 64 representative farms it uses for policy analysis.

It looked at the farms from 2005 through 2014 using historical price and yield variables and a three-year moving average of adjusted gross income annually. One finding: Due to the risky nature of farm income, a farm can be eligible for payments one year and not the next.

Thus, even though an Iowa grain farm had an average adjusted gross income of less than the $200,000, it had a 22.57 percent chance of being ineligible for government payments and over the seven years would average 1.58 years of ineligibility. When it was ineligible, it lost $46,340 in government payments.

A large grain farm in Dorgan's North Dakota lost $192,710 in government payments during the years when the farm was ineligible, and a large Nebraska grain farm lost $189,000 in those payments.

Farms in Iowa and North Dakota would be impacted by payment limits? Yes. In fact, Grassley's own 710-acre corn and soybean farm near Waterloo, Iowa, could lose farm program payments if his $250,000 per individual cap were enacted.

Of the feed grain farms in the Texas A&M analysis, 16 would lose government payments and six would experience more than a $150,000 decrease in real net worth. The model wheat farms would lose smaller amounts because of the lower probability wheat farmers would receive payments between 2008 and 2014.

Lost payments generally were low for cotton and rice farms because of income expectations for those commodities. Losses in net worth were also low, in general, but five of the cotton farms lost more than 25 percent of their net worth.